Seagood Trading Corp. v. Jerrico, Inc.

• Decision Date: 14 February 1991
• Docket Number: No. 89-3552,89-3552
• Citation: 924 F.2d 1555
• Parties: 1991-1 Trade Cases 69,335 SEAGOOD TRADING CORPORATION, Seagood Seafood, Inc., Falcon Food Service Company, Inc., Plaintiffs-Counterdefendants, Appellants, v. JERRICO, INC., S & S Food Management Company, Inc., Defendants, Long John Silver's, Inc., United Maritime Fishermen, Ltd., Caribou Fisheries, Inc., Defendants-Counterplaintiffs, Martin-Brower Company, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1555

924 F.2d 1555

1991-1 Trade Cases 69,335

SEAGOOD TRADING CORPORATION, Seagood Seafood, Inc., Falcon

Food Service Company, Inc., Plaintiffs-Counterdefendants, Appellants, v. JERRICO, INC., S & S Food Management Company, Inc., Defendants,

Long John Silver's, Inc., United Maritime Fishermen, Ltd.,

Caribou Fisheries, Inc., Defendants-Counterplaintiffs,

Martin-Brower Company, Defendant-Appellee.

No. 89-3552.

United States Court of Appeals, Eleventh Circuit.

Feb. 14, 1991.

Blaine H. Winship, Winship & Byrne, Karin M. Byrne, Brandon, Fla., for plaintiffs-counterdefendants, appellants.

Terry J. Houlihan, McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., for Martin-Brower Co.

John F. Dienelt, Reed, Smith, Shaw & McClay, Washington, D.C., for Jerrico, Inc.

Steven L. Brannock, Holland & Knight, Tampa, Fla., for Long John Silver's.

Appeal from the United States District Court for the Middle District of Florida.

Before TJOFLAT, Chief Judge, ANDERSON, Circuit Judge, and ESCHBACH ^*, Senior Circuit Judge.

TJOFLAT, Chief Judge:

In this antitrust case, Seagood Trading Corporation and Falcon Food Service Company, Inc., claim that Long John Silver's, Inc., Martin-Brower Company, and others have conspired to drive them out of business, in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1, 2 (1988). In essence, Seagood and Falcon contend that, in furtherance of this conspiracy, one or more of these firms have refused to deal with them and, moreover, have forced their customers to cease doing business with them. Invoking sections 4 and 16 of the Clayton Act, 15 U.S.C. Secs. 15, 26 (1988), they seek treble damages and injunctive relief. The case is presently before us for the purpose of reviewing the district court's order granting Martin-Brower summary judgment. After issuing the order, the court entered final judgment for Martin-Brower, finding that there was no just reason for delaying the entry of final judgment until the plaintiffs' claims involving the other defendants in the case had been resolved. See Fed.R.Civ.P. 54(b). We affirm the summary judgment, concluding that none of the plaintiffs' claims against Martin-Brower have merit.

I.

A.

Martin-Brower Company (M-B) is a distributor of food to restaurants throughout the United States and Canada. M-B specializes in servicing large restaurant chains, such as McDonald's, Red Lobster, and Arby's; for this reason, it has only a few clients. These clients, however, own or franchise over 6000 restaurants. M-B provides a wide range of services for its clients. For example, it maintains warehouses, including cold-storage facilities, where products needed by its customers are kept in inventory. It also operates a fleet of refrigerated trucks that deliver products from its warehouses to the restaurants it services.

Long John Silver's, Inc. (LJS) owns and franchises fast-food seafood restaurants, known as Long John Silver's Seafood Shoppes, across the United States and in Canada and Japan. Of these shoppes, 880 belong to LJS and 532 belong to approximately fifty-three franchisees. The shoppes are the dominant providers of seafood in the fast-food market. They offer a variety of meals, primarily battered and breaded fried cod, shrimp, and chicken; seafood salads; side dishes, including french fries, corn on the cob, and hush puppies; and dessert pies. The staple of the shoppes' menus is frozen cod fillets; as a whole, the shoppes are the largest users of cod in the United States.

Besides owning and franchising shoppes, LJS also operates as a wholesale food distributor; it limits its service, however, to its own shoppes and those of its franchisees. LJS offers these shoppes all of the products they use in preparing and selling food to the consuming public. LJS is the sole supplier of the food used in its shoppes; it is the predominant supplier, competing with other food distributors, such as Seagood and Falcon, of the food used in its franchisees' shoppes. ¹ The franchisees are required, by the terms of their franchise agreements with LJS, to purchase brands of food that have been approved by LJS' food and beverage department for use in the shoppes (both LJS-owned and franchised shoppes) and placed on LJS' "approved list"; ² thus, a competitor of LJS wishing to sell to a franchisee must have access to one or more of the approved brands of food on that list. LJS' food and beverage department constantly tests and evaluates the various brands of food available in the marketplace; the department does this, according to LJS, to ensure that the food the shoppes serve is of the highest quality. Accordingly, the brands on the approved list may change from time to time, depending on their quality.

M-B became involved with LJS in 1977. In that year, LJS hired M-B to take over its food distribution functions. Under the parties' arrangement, LJS purchases the food, including cod, from the independent suppliers in the marketplace; M-B, acting as LJS' agent, however, actually orders the food. M-B then arranges for the transportation of the food to its regional warehouses, where the food is stored; takes food orders from both the LJS-owned and franchised shoppes; delivers the food to the shoppes; and, overall, maintains an accounting of LJS' food purchases, sales, and inventory. ³

In return for these services, LJS pays M-B a fee for each case of food delivered to an LJS-owned or franchised shoppe. This fee is determined in the following manner. Prior to the beginning of the fiscal year, M-B estimates the number of cases of food that it will deliver to the shoppes during that year, the costs it will incur in handling these cases, and the profit necessary to give it a reasonable return on the portion of its investment devoted to LJS' needs. M-B and LJS settle on these figures and arrive at the total fee (total costs plus total profits) that M-B expects to reap for the upcoming year. The total fee is then divided by the total number of cases M-B expects to deliver. ⁴ The resulting amount represents the portion of the total fee attributable to each case; at designated times during the year, ⁵ LJS pays M-B this amount for each case of food actually delivered by M-B. At the end of the fiscal year, there may be a significant disparity between the projected and actual revenue received by M-B from LJS; this is because of the uncertainty involved in estimating costs and the number of cases to be delivered. To remedy this, LJS and M-B make adjustments in the pay schedule for the following year to compensate for any variance. This system guarantees that, as closely as possible, M-B reaps the agreed-upon total fee. ⁶

After it obtained the LJS account, M-B developed a highly efficient delivery system to service the shoppes. M-B, using its own trucks, provided weekly delivery service to each shoppe; it was able to furnish this service because of the efficiencies it realized from delivering food to such a large number of locations. At that time, most franchisees were purchasing all of their food requirements from LJS and this kept M-B's trucks full, thus keeping the transportation costs associated with each delivery to a minimum. M-B also divided the shoppes into geographic clusters and therefore gained further efficiencies by servicing each cluster from a regional warehouse. Additionally, M-B realized even greater economies of scale by using its trucks to carry cargo for other clients on the return trips, a practice known as "backhauling." This practice further spread M-B's transportation costs across still more transactions.

The franchisees preferred this weekly service over the less frequent delivery service offered by competing food distributors because it allowed them to devote less space to the storage of frozen food products and it permitted them to order their supplies more precisely than they could otherwise. ⁷ Furthermore, the weekly delivery service allowed franchisees to spend less money on inventory, permitting them to invest their capital more profitably. Franchisees also preferred M-B's delivery service because M-B was, on the whole, more reliable than other deliverers. ⁸ Due in large part to the success of M-B's weekly delivery service, LJS maintained its domination over the market for sales of food to franchisees.

As would be expected, after M-B began delivering food to the shoppes on a weekly basis, it received requests from some of LJS' competitors--in particular, those who were wholesaling cod--to provide weekly delivery service to the franchisees' shoppes for their products as well. ⁹ These competitors wanted M-B to deliver their products in the same trucks that M-B used to deliver LJS' products so that they could experience the cost savings being realized by LJS. M-B's contract with LJS did not prohibit M-B from providing the same delivery service to LJS' competitors. M-B, nonetheless, turned down these requests.

LJS maintained its domination over the market for sales of food to franchisees until late 1979, when its competitors began offering food supplies to the franchisees for lower prices than LJS; even though they offered the franchisees only monthly delivery service, they were able to gain a competitive edge principally by pricing cod at a level significantly below LJS' price.

Prior to 1981, LJS had purchased its cod exclusively from Scandinavian suppliers, which were the only sources of LJS-approved cod. This cod, however, was also expensive; Canadian cod of similar quality was much cheaper. At the request of some franchisees, LJS, in late 1979, approved for use in the shoppes three Canadian brands of cod. Quality Cod Products (QCP), a wholesale competitor of LJS, entered into an exclusive, one-year contract with Caribou, the largest of the three Canadian suppliers, to purchase all of Caribou's cod (which met LJS' specifications) and immediately began selling this cod to franchisees. QCP sold its cod, delivered monthly, at a...